CN JEWELLERS, LLC v. ANIL C. SONI (C-000065-17, MIDDLESEX COUNTY AND STATEWIDE)

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court ." Although it is posted on the
internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-1703-20
CN JEWELLERS, LLC,
and NILESH SONI,
Plaintiffs-Respondents,
v.
ANIL C. SONI, PNG-CNJ,
LLC, d/b/a PNG JEWLERS,
and CNJ USA, LLC,
Defendants,
and
PNG JEWELERS, INC.,
Defendant-Appellant.
__________________________
Argued December 7, 2021 – Decided February 3, 2022
Before Judges Messano and Accurso.
On appeal from the Superior Court of New Jersey,
Chancery Division, Middlesex County, Docket No.
C-000065-17.
Paul S. Grossman argued the cause for appellants
(Weiner Law Group, LLP, attorneys; Paul S. Grossman,
of counsel and on the briefs).
John van Loben Sels (Fish IP Law, LLP) of the
California bar, admitted pro hac vice, and Samantha F.
Green argued the cause for respondents (Sidkoff,
Pincus & Green, PC, attorneys; John van Loben Sels,
Samantha F. Green, and Matthew Lusich (Fish IP Law,
LLP) of the California bar, admitted pro hac vice, on
the brief).
PER CURIAM
Defendant PNG Jewelers, Inc. (PNG), appeals the denial of its motion to
vacate default judgment against defendant in favor of plaintiffs CN Jewellers
LLC (CNJ) and Nilesh Soni (Nilesh) in the amount of $486,662.56.1 We
reverse.
I.
(A)
In April 2017, plaintiffs filed a verified complaint setting forth the
following factual allegations supporting their claims.
Nilesh and defendant Anil Soni were the sole members of CNJ, which
was formed in 2010 and operated a jewelry store in Edison. Anil failed to make
1
We use first names on occasion to avoid confusion because individuals share
the same last name. We intend no disrespect by this informality.
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required capital contributions, resulting in revisions to their membership
interests. Nilesh left for India in 2015, and, by the end of that year, Anil
retained only a 17.4% interest in the LLC; Anil managed the business while
Nilesh was away.
CNJ became substantially indebted to a supplier in India due to Anil's
poor management.2 Nilesh and Anil actively set about to locate investors to
infuse capital and received a proposal from PNG-CA, a California corporation.
Anil took over negotiations with PNG-CA but failed to communicate with
Nilesh until 2017, when Anil travelled to India to meet with Nilesh. Anil
convinced Nilesh to execute a consent terminating CNJ's lease in Edison.
Anil ultimately closed the transaction with PNG-CA, and transferred or
converted CNJ assets, including substantial amounts of jewelry, to his own use
without notifying Nilesh. Anil took the returned security deposit of $40,000
from cancellation of the lease, liquidated $60,000 of CNJ's inventory, and used
that money to enter a new lease on behalf of CNJ-USA, an LLC Anil formed.
CNJ-USA, in turn subleased the premises for $381,000 to a new LLC, PNG-
CNJ, that Anil formed with himself and Saurabh Vidhyadhar Gadgil as
2
The record included references to another action that resulted in a judgment
against CNJ in favor of PVJ-India in the amount of $703,672.
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members. PNG-CNJ continued to operate a jewelry store in Iselin. Plaintiffs
also alleged that Haresh Soni came to New Jersey on their behalf to negotiate
with Anil and resolve issues around CNJ's dissolution. The verified complaint
attached an inventory of jewelry in the Edison store allegedly signed by Anil
and Haresh.
Plaintiffs asserted causes of action for replevin, conversion, and fraud
against Anil and PNG,3 as well as claims against Anil pursuant to the Revised
Uniform Limited Liability Company Act, N.J.S.A. 42:2C-1 to -17, and other
common law causes of action. Represented by attorney Lawrence B. Sachs,
defendants filed a joint answer denying the allegations.
After the judge entered an order on March 2, 2018, striking defendants'
answer without prejudice for failure to provide discovery, plaintiffs moved in
June to strike defendants' answer with prejudice and enter default. The motion
was accompanied by Nilesh's "certification of proof," in which he claimed
plaintiffs were entitled to judgment against all defendants "in the amount of
$481,000," computed as the sum of $381,000 — the value of CNJ's interest in
defendants' leasehold and improvements — together with $100,000 Anil
3
The complaint named three separate business entities as defendants: PNG
Jewelers, Inc., PNG-CNJ LLC d/b/a PNG Jewelers, and CNJ-USA, LLC.
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deposited on the new lease. Nilesh also calculated Anil misappropriated an
additional $174,786.70 from CNJ, and plaintiffs sought judgment for
$655,786.70 against Anil.
The motion sparked a response from Sachs, who then served answers to
interrogatories and responses to the document request, and cross-moved to
restore defendants' pleading. Plaintiffs' counsel, however, outlined continued
discovery deficiencies and urged the court to deny defendants' cross motion,
suppress their answer pursuant to Rule 4:23-5(a)(2), and enter default judgment
pursuant to Rule 4:43-2(b). The judge entered an order on August 6, 2018, that
denied both plaintiffs' motion and defendants' cross-motion without prejudice.
The order provided dates, all of which had already passed, by which defendants
were to cure deficiencies in discovery responses.
Defendants moved to reinstate their answer in September, with Sachs
certifying that fully responsive discovery was supplied. Plaintiffs opposed the
motion. Their counsel certified that responses from the three defendant entities
were identical to the responses served by Anil and were all certified by Anil.
Sachs answered, claiming Anil was "the entity or individual responsible for
responding . . . based upon his relationship and interest in all of the
[d]efendant[] entities." The judge entered an order in January 2019 vacating
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his prior order suppressing defendants' pleading and restoring the matter to the
trial list.
By March, plaintiffs again sought to strike defendants' answer and enter
default because they were denied opportunities to depose Anil, Gadgil and a
principal of PNG. Sachs responded, noting that "one of the [d]efendants
resid[ed] in California," and he needed sufficient time to schedule the
depositions. Sachs also noted that striking defendants' answer was
inappropriate "since no [c]ourt [o]rder mandating the deposition has ever been
entered." The judge entered such an order on June 7, 2019, that specifically
said defendants' pleadings would be stricken for failure to comply. Anil was
deposed on July 11.
When Sachs produced neither Gadgil nor a principal of PNG for
deposition, plaintiffs again moved to strike the answer and enter default
judgment against PNG for $481,000, plus $5,662.56 in counsel fees. The judge
entered an order on October 8, 2019, striking PNG's answer and defenses
"pursuant to R. 4:23-5(a)(1) and the . . . the June 7, 2019 [o]rder," 4 and entering
4
Rule 4:23-5(a)(1) dismissals without prejudice, and Rule 4:23-5(a)(2)
dismissals with prejudice, expressly apply to non-compliance with discovery
obligations pursuant to Rule 4:17, pertaining to interrogatories, Rule 4:18,
pertaining to demands for documents, and Rule 4:19, pertaining to demands for
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judgment in that amount in plaintiffs' favor. Plaintiffs' counsel served a copy
of the judgment on Sachs the following day.
On January 27, 2020, however, the judge entered an order "dismiss[ing
the matter] without prejudice in favor of transfer to arbitration pursuant to the
[o]perating [a]greement . . . executed between the parties, the [p]laintiff []s
having consented to the transfer." The order was brought on Sachs' application,
and the court conducted oral argument, although we have not been provided
with any transcript of the proceeding. PNG was included in the order referring
the matter to arbitration.
(B)
The above was necessary prelude to the matter before us. In December
2020, represented by its current counsel, PNG moved to vacate the October
2019 default judgment pursuant to Rule 4:50-1(f). Counsel certified that he
reviewed Sachs' file and there was no entry of default or notice of a proof
hearing prior to entry of the judgment, as required by Rule 4:43-2, and even if
medical examinations. Neither subsection applied here. An order striking a
party's answer and entering judgment by default for failure to comply with an
order to appear at deposition would be entered pursuant to Rule 4:23-2(b)(3).
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Sachs' "file was incomplete," and the court issued the notices, "there [wa]s no
evidence within Sachs' file indicating . . . PNG received notice of either."
The motion was supported by a certification of Rajendra Soni, a member
of PNG's Board of Directors and its CEO from 2014 to February 2019. He
detailed some of the negotiations between Anil and PNG but said Anil was
"never . . . an employee or authorized agent of PNG." Rajendra said that Sachs
emailed the company with plaintiffs' counsel's notification, in care of its
California address, of a hearing in May 2017 on the order to show cause, along
with a copy of the court's letter requiring personal attendance of the parties. 5
Rajendra further certified that he was surprised when a copy of the
lawsuit was served on him, because "PNG was never involved in any manner
with respect to any negotiations or disagreements between Anil and Nilesh, or
any CN[J] operations." He called Anil, who was also surprised, and on Anil's
recommendation, PNG retained Sachs.
Rajendra attended the May 2017 hearing on the order to show cause with
Sachs, who advised him afterwards "PNG's role in the matter was now
complete." Rajendra certified: "[t]hereafter, no one contacted me, or spoke to
me, or gave me any documents relating to PNG and this lawsuit." PNG-CNJ
5
Gadgil is also named in plaintiffs' counsel's letter at the California address.
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conducted a jewelry business in Iselin, but it wound up operations in December
2018. PNG heard nothing further regarding the suit until the company was
served in California with a federal district court complaint in 2020 seeking to
enforce the New Jersey default judgment obtained by plaintiffs.
Anil also supplied an affidavit stating PNG was not involved in his
disputes with Nilesh and CNJ. Anil said in 2019, when Sachs asked about
potential deponents for PNG, Anil thought he meant PNG-CNJ, and Anil said
he could be deposed as its agent. He never thought PNG was involved in the
litigation, and never told Rajendra it was still involved after the May 2017
appearance on the order to show cause.
The motion was also supported by a certification from Sachs. He
consented to accept service on all defendants, and, although he could not recall
telling Rajendra PNG was no longer involved in the litigation, he did state that
after the May 2017 hearing, his "communication with defendants was done
through Anil, whom [he] believed (perhaps wrongly) was authorized to speak
for all of the defendants." Sachs admitted that if Anil was not communicating
with PNG about the litigation, it "could have believed that it was no longer
involved."
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Sachs could not recall ever contacting "any representative of PNG" about
the deposition notices or the court's June 2019 order compelling depositions by
a date certain; he "may have spoken to Anil, but there [was] no record of [him]
doing so in [his] file." Sachs said when the depositions were rescheduled, he
sent notice to Anil, through Anil's brother. He never sent a copy to PNG.
Sachs also certified that Anil told him PNG was no longer doing any
business in the United States, and Sachs made no effort to contact the company
in California. Sachs filed opposition to plaintiffs' motion for default judgment,
advising the judge that he wished to be relieved of representing PNG "because
[he] could not communicate with [it]." But Sachs admitted he never tried to
contact PNG at its California address or conduct an internet search. After the
judge entered default judgment, Sachs never sent PNG a copy because he
"believed [it was] no longer doing business in the United States."
Lastly, Ashutosh Joshi, PNG's CEO after February 2019, certified that
the company was a wholly owned subsidiary of an Indian company and
maintained corporate headquarters and a retail store in California. That
information was on its website. Joshi reiterated Sachs never contacted anyone
at the company regarding depositions, and no one knew the court ordered
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depositions or entered default judgment. Joshi again said that PNG was not
involved in the dispute between Nilesh and Anil over CNJ.
Plaintiffs' opposition relied primarily on the procedural history set forth
in I(A) above. Additionally, Nilesh certified that plaintiffs had since decided
to abandon arbitration and dismissed their claims against Anil, relying, in part,
on the judgment against PNG. He asserted plaintiffs would suffer prejudice if
the judgment was vacated.
A different judge considered PNG's motion to vacate and rendered an oral
opinion denying the motion after hearing argument. The judge concluded PNG
was in the best position to gather information from Sachs, who it retained as its
counsel, yet it failed to keep in contact with Sachs or confirm it was no longer
involved in the litigation. Because fourteen months had passed since entry of
judgment, PNG needed to demonstrate exceptional circumstances to vacate the
judgment under Rule 4:50-1(f). The judge noted attorney fault "generally
doesn't meet the standard for either excusable neglect or . . . exceptional
circumstances." She also found Sachs' current certification was "at odds with
prior representations made during the pendency of the litigation," and
contradicted Rajendra's certification.
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The judge stayed execution on the judgment after the parties reached
agreement on staying the federal suit in California. This appeal followed.
II.
Rule 4:50-1 provides grounds by which the court may relieve a party
"from a final judgment or order." "The rule is 'designed to reconcile the strong
interests in finality of judgments and judicial efficiency with the equitable
notion that courts should have authority to avoid an unjust result in any given
case.'" US Bank Nat'l Ass'n v. Guillaume, 209 N.J. 449, 467 (2012) (quoting
Mancini v. EDS , 132 N.J. 330, 334 (1993)). "A court should view 'the opening
of default judgments . . . with great liberality,' and should tolerate 'every
reasonable ground for indulgence . . . to the end that a just result is reached. '"
Mancini, 132 N.J. at 334 (quoting Marder v. Realty Constr. Co., 84 N.J. Super.
313, 319 (App. Div.), aff'd, 43 N.J. 508 (1964)). "The trial court's determination
under the rule warrants substantial deference[] and should not be reversed unless
it results in a clear abuse of discretion." Guillaume, 209 N.J. at 467 (citing DEG,
LLC v. Twp. of Fairfield, 198 N.J. 242, 261 (2009); Hous. Auth. of Morristown
v. Little, 135 N.J. 274, 283 (1994)).
The court may provide relief from final judgment for "any . . . reason
justifying relief from the operation of the judgment or order." R. 4:50-1(f). "No
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categorization can be made of the situations which would warrant redress under
subsection (f). . . . [T]he very essence of (f) is its capacity for relief in
exceptional situations. And in such exceptional cases its boundaries are as
expansive as the need to achieve equity and justice." DEG, 198 N.J. at 269–70
(alteration in original) (quoting Ct. Inv. Co. v. Perillo, 48 N.J. 334, 341 (1966)).
The use of subsection (f) is "limited to 'situations in which, were it not applied,
a grave injustice would occur.'" Guillaume, 209 N.J. at 484 (quoting Little, 135
N.J. at 289). Deciding whether to grant relief under subsection "(f) calls for the
exercise of sound discretion, 'guided by equitable principles, and in conformity
with the prescription that "any doubt should be resolved in favor of the
application to set aside the judgment to the end of securing a trial upon the
merits."'" Davis v. DND/Fidoreo, Inc., 317 N.J. Super. 92, 100–01 (App. Div.
1998) (quoting Goldfarb v. Roeger, 54 N.J. Super. 85, 92 (App. Div. 1959)).
The motion judge concluded Sachs' certification contradicted Rajendra's
claim that Sachs told him PNG was no longer involved in the litigation after the
May 2017 hearing on the order to show cause. However, Sachs only said he did
not recall that conversation. Far more important were Sachs' admissions,
uncontradicted on this record, that he never contacted PNG directly after the
order to show cause, never notified it directly about the need to sit for
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depositions, and never notified PNG of the default application. Instead, Sachs
only contacted Anil, relying on Anil's self-professed claim that he had authority
to speak on behalf of all defendants.
The judge found Sachs' certification contradicted prior representations the
attorney made during the litigation. However, Sachs' representations that Anil
had authority to speak for all defendants were premised on Anil's
misrepresentations, not on Sachs' own investigation of PNG's independent status
as a California corporation or the interrelationships, if any, between his clients.
Indeed, the motion judge failed to recognize the tenuous ethical position Sachs
was in, since it is apparent from reading the complaint that Anil's interests and
those of PNG were potentially adverse.
We have repeatedly considered whether an attorney's negligence provides
grounds for relief under subsection (f). In Parker v. Marcus, the plaintiff's
complaint was dismissed when he failed to appear for arbitration; his attorney
never notified him to appear, and thereafter lied about the ongoing progress of
the litigation. 281 N.J. Super. 589, 591–92 (App. Div. 1995). We said that in
considering relief under subsection (f), a court must consider: "(1) the extent of
the delay in making the application; (2) the underlying reason or cause; (3) the
fault or blamelessness of the litigant; and (4) the prejudice that would accrue to
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the other party." Id. at 593 (citing Jansson v. Fairleigh Dickinson Univ., 198
N.J. Super. 190, 195 (App. Div. 1985)). We rejected the defendant's argument
that reinstatement of the complaint was unduly prejudicial, reversed the
dismissal and remanded the case for further proceedings. Id. at 595.
In Jansson, as in this case, the court dismissed a pleading — the plaintiffs'
complaint — for a discovery dereliction. 198 N.J. Super. at 193. Three years
later, a different attorney moved to reinstate the complaint, and, applying the
factors cited above, we granted that relief, finding the plaintiffs "were,
themselves, entirely blameless." Id. at 195; see also Ridge at Back Brook, LLC
v. Klenert, 437 N.J. Super. 90, 98–99 (App. Div. 2014) (citing Jansson factors
and holding they were applicable in considering whether a pro se litigant's
negligent representation of his interests justified relief from judgment) .
We find another reason to grant PNG relief which the judge failed to
address. "Our Rules prescribe a two-step default process, and there is a
significant difference between the burdens imposed at each stage. When nothing
more than an entry of default pursuant to Rule 4:43-1 has occurred, relief from
that default may be granted on a showing of good cause." Guillaume, 209 N.J.
at 466–67 (citing R. 4:43-3). Final judgment by default may be entered only
after default has been entered, "but not simultaneously therewith." R. 4:43-2.
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Here, plaintiffs' single motion sought the striking of PNG's answer for failing to
sit for depositions, entry of default, and entry of default judgment, which was
clearly improper.
In certain limited circumstances, judgment by default may be entered by
the clerk. R. 4:43-2(a). Otherwise, the party seeking judgment must move
before the court, upon notice to all parties, to enter default judgment, and the
court may conduct a proof hearing; the defaulting party or its representative is
entitled to notice of the proof hearing. R. 4:43-2(b). Based on the record before
us, it is apparent that plaintiffs never complied with these procedures to secure
default judgment. 6
Moreover, even if the default judgment were properly entered under Rule
4:23-2(b)(3), a successful plaintiff may be required to furnish some proof on the
merits to show entitlement to the relief demanded based on the cause of actin
pled in the complaint, and to prove the quantum of damages. See, e.g.,
Slowinski v. Valley Nat'l Bank, 264 N.J. Super. 172, 183 (App. Div. 1993).
6
We reject the assertion plaintiffs made at argument that this issue was never
raised by PNG. Although not asserted during oral argument before the motion
judge or repeated in its brief on appeal, the procedural infirmities in this case
were specifically noted in PNG's counsel's certification in support of the motion
to vacate default judgment.
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Judgment in plaintiffs' favor on its claims against PNG for fraud and conversion
were not established by the documents in the record before us and should not
have been entered without a proof hearing.7
In Nowosleska v. Steele, we reversed the denial of a motion to vacate
default judgment entered against the defendants in an ejectment action. 400 N.J.
Super. 297, 300, 306 (App. Div. 2008). We noted:
A court's liberality in vacating default judgments is
justified, since a default judgment is based on only one
side's presentation of the evidence without due
consideration to any countervailing evidence or point
of view, and, thus, may not be a fair resolution of the
dispute. As a result, on a motion to vacate a default
judgment, "[a]ll doubts . . . should be resolved in favor
of the parties seeking relief."
[Id. at 303 (alteration in original) (quoting Mancini, 132
N.J. at 334).]
In this case, the motion judge failed to resolve any doubts in favor of PNG;
she did the opposite. In so doing she mistakenly exercised her discretion and
denied the motion to vacate the default judgment entered against PNG. We
7
The replevin claim was apparently resolved because early in the litigation, the
court ordered whatever jewelry was in the safe at CNJ and under Anil's control
to be retained and not disposed of by the parties. It is unclear what happened to
that jewelry.
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reverse and vacate the judgment, reinstate PNG's answer, and remand the matter
to the trial court for further proceedings.
Reversed and remanded. We do not retain jurisdiction.
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